Suppliers Under Pressure
By TA News Bureau
Automakers and OEMs are coming under increasing pressure to deliver cutting-edge technologies, and in the process they are finding it difficult to pass on the higher costs to consumers. Research has shown that under customer pressure, OEMs are facing intense competition to produce products that offer fuel efficiency, advanced safety technologies, lighting and comfort features. OEMs would be driving $350 billion in incremental automotive supplier business opportunities by 2021. Matteo Fini, the London-based Senior Manager, Supplier Solutions at IHS Markit, says OEMs are facing an uphill challenge with compliance which will require more hardware and therefore more cost that they will find difficult to pass on to final consumers. This, combined with the fact that consumers also want more technology in the vehicle for convenience and comfort, will result in significant cost pressures for OEMs and suppliers, he says in an interview
Research by IHS Markit, which offers analytics to governments and 85 per cent of the Fortune Global 500 companies, has shown that the race towards greater safety, cleaner emissions compliance and weight reduction is estimated to create an incremental cost per vehicle of $744 globally between now and 2021.
This will not remain a phenomenon in mature markets alone and but also extend to emerging economies that are expected to play a major role in driving the average content upward on a global basis, as consumers in these markets demand higher levels of sophistication for vehicles made available locally, notes Matteo Fini, London-based Director at IHS Markit.
Although fuel efficiency, human-machine interface (HMI) and safety are major technological changes, customers will come under pressure to pay the additional costs for all these.
“It really depends on the technology and on the market. What OEMs can extract from consumers in the form of add-ons, optional varies significantly,” he told Tyre Asia in an interview.
For example, car buyers in China are specifying leather seats much more frequently than Europeans, while in North America advanced connectivity is an area which has been attracting lots of consumer interest.
“The frequent shifts in consumer tastes create a set of planning challenges for OEMs and suppliers,” Fini points out. Automakers are being challenged to innovate and differentiate as never before as they strive to build brand equity.
“Innovation is a clear source of brand differentiation, but it is going to be increasingly resource draining for automakers as the technological challenges around Advanced Driver Assistance Systems (ADAS), HMI, interior, powertrain and chassis, for example, require new capabilities and substantial R&D investment,” he said.
Figuring out the interdependencies and priorities among all of these sectors is probably one of the biggest headaches for automakers. With limited budgets, there are many areas of the vehicles requiring investment.
Referring to reports that technology leaders such as Google, Apple and Tesla are scaling back their ambitious technological development programmes to build self-driving cars, he said there is a lot of speculation about the level of disruption that these players might bring to the auto industry.
But in fairness there are many smaller companies, for example Mobileye, that are bringing an equivalent level of disruption in the industry, perhaps they are less under the spotlight. One should look also beyond the bigger names said Fini, who is a top specialist in OEM strategy and supply chain analysis at IHS Markit.
When asked whether OEMs/suppliers are behind automakers when it comes to technological developments, Fini said that suppliers thrive or die based on how much behind or ahead of the curve they are on technological developments.
“This will create a natural selection in the supply base: those who won’t be able to develop solutions that anticipate the OEMs’ needs will find it difficult to succeed in the market.”
His research shows that new opportunities for suppliers are emerging through a variety of powertrain technologies such as turbocharging and cooled EGR (exhaust gas recirculation) that are being implemented in more cost-sensitive but higher volume segments, for example.
Emerging markets will also drive technological sophistication which is reflected in the rising demand, for example, for digital and analogue-digital instrument clusters. In China alone this is expected to generate $1.2 billion in incremental business for suppliers of this component by 2021.
In this scenario suppliers need to be ready and agile to meet the demand for high-tech products for which they have to rework their business processes to operate in an increasingly more agile development environment.
Although initially the technology costs might be high, gradually it will decrease when volumes pick up and further technology refinements are in place. In some component areas such as batteries, cost might see a 20 per cent reduction for each doubling of the cumulated deliveries in others.
In this highly competitive automotive world it is essential that OEMs should select and integrate the right technologies—ones that drive business performance, product differentiation and customer loyalty—in order to survive.